TY - BOOK ID - 84658537 TI - Determinants of Sovereign Bond Spreads in Emerging Markets : Local Fundamentals and Global Factors vs. Ever-Changing Misalignments AU - Csonto, Balazs. AU - Ivaschenko, Iryna. AU - International Monetary Fund. PY - 2013 VL - WP/13/164 SN - 1484336011 1484361482 1475550502 PB - Washington, D.C. : International Monetary Fund, DB - UniCat KW - Bonds. KW - Markets. KW - Public markets KW - Commerce KW - Fairs KW - Market towns KW - Bond issues KW - Debentures KW - Negotiable instruments KW - Securities KW - Debts, Public KW - Stocks KW - Banks and Banking KW - Finance: General KW - Financial Risk Management KW - Interest Rates: Determination, Term Structure, and Effects KW - International Financial Markets KW - General Financial Markets: General (includes Measurement and Data) KW - Financial Crises KW - Portfolio Choice KW - Investment Decisions KW - Finance KW - Economic & financial crises & disasters KW - Emerging and frontier financial markets KW - Securities markets KW - Financial crises KW - International liquidity KW - Yield curve KW - Financial markets KW - Asset and liability management KW - Financial services KW - Financial services industry KW - Capital market KW - International finance KW - Interest rates KW - United States UR - https://www.unicat.be/uniCat?func=search&query=sysid:84658537 AB - We analyze the relationship between global and country-specific factors and emerging market debt spreads from three different angles. First, we aim to disentangle the effect of global and country-specific developments, and find that while both country-specific and global developments are important in the long-run, global factors are main determinants of spreads in the short-run. Second, we investigate whether and how the strength of fundamentals is related to the sensitivity of spreads to global factors. Countries with stronger fundamentals tend to have lower sensitivity to changes in global risk aversion. Third, we decompose changes in spreads and analyze the behavior of explained and unexplained components over different periods. To do so, we break down fitted changes in spreads into the contribution of country-specific and global factors, as well as decompose changes in the residual into the correction of initial misalignment and an increase/decrease in misalignment. We find that changes in spreads follow periods of tightening/widening, which are well-explained by the model; and the dynamics of the components of the unexplained residual follow all the major developments that impact market sentiment. In particular, we find that in the periods of severe marketstress, such as during the intensive phase of the Eurozone debt crisis, global factors tend to drive changes in the spreads and the misalignment tends to increase in magnitude and its relative share in actual spreads. ER -